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Areas for Consideration

1. TeamSystem growth on sales

TeamSystem generated sales of (lira) ITL60.5 billion (EUR31.3 million) and EBIT (earnings before
interest and taxes) of ITL18.5 billion (EUR9.5 million). Those results continued a strong pattern of growth
for TeamSystem. Since 1996, sales had grown at an annualized rate of 15 percent and operating margins
improved. As a result, EBIT had grown at an annualized rate of 31.6 percent over the same period.

2. Lack of debt on Team-System's balance sheet

It represents an opportunity to bring TeamSystem to a more effective capital structure that might
lower the company's cost of capital. TeamSystem do not have audited consolidated financial
information for the previous five years.

3. Evaluation of the value of TeamSystem

TeamSystem had no strategic plan or future forecast of profitability. TeamSystem only has four
years of historical information. Palamon Capital Partners need to estimate the future cash flows that
TeamSystem would generate given market trends and the value that Palamon could add.
TeamSystem could grow revenues at 15 percent per year for the next few years, a pace above the
expected market growth rate of 9 percent, followed by a 6 percent growth rate in perpetuity. A 14
percent discount rate would appropriately capture the risk of the cash flows. That rate reflected three
software companies' trading on the Milan stock exchange, whose betas averaged 1.44 and unlevered
betas averaged 1.00.

4. Lack of comparable valuations in the Italian market

Since most of TeamSystem’s competitors were family-owned, there was very little market
transparency. The nearest matches were other European and U.S. enterprise resource planning (ERP)2
companies and accounting software companies.

5. Evaluation of the risks associated with the deal

TeamSystem's management team might not be able to make the change to a more professionally
run company. The CEO, Ranocchi, had successfully navigated the last five years of growth, but the
management group relied on him for almost every decision.
TeamSystem was facing an inspection by the Italian tax authorities. The inspection posed a financial
risk and therefore could serve as a significant distraction for management. Further, because it was
open-ended, the inspection might delay the company's ability to go public.

The company might not be able to keep up with technological change. While the company had
begun to adapt to technological changes such as new programming languages, it still had some
products on older platforms that would require significant reprogramming. In addition, the Internet
posed an immediate threat if TeamSystem's competitors adapted to it more quickly than
TeamSystem did.

Finally, Elson wanted to make sure that he could capture the value that TeamSystem might be
able to create in the next few years. Exit options were, therefore, also an important